Consumer Inertia, Choice Dependence, and Learning from Experience in a Repeated Decision Problem

Eugenio Miravete () and Ignacio Palacios-Huerta

The Review of Economics and Statistics, 2014, vol. 96, issue 3, 524-537

Abstract: Understanding when and how individuals think about real-life problems is a central question in economics. This paper studies the role of inertia (inattention), state dependence, and learning. The empirical setting is a tariff experiment, when optional measured tariffs for local telephone calls were introduced unanticipatedly. We find that consumers tend to align their choices of tariff and telephone use levels correctly. Despite low potential savings, mistakes are not permanent, as individuals actively engage in tariff switching in order to reduce the monthly cost of telephone service. Ignoring unobservable heterogeneity and the endogeneity of past choices would have reversed these results. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Keywords: tariffs; telephone use; inertia; state dependence; learning; tariff switching (search for similar items in EconPapers)
JEL-codes: D12 D14 D41 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (24)

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